Tech bubble? You better believe it
We’re in a bubble, but this one is now permanent, one that we are constantly inflating. As I pointed out almost a year ago, the tech environment has created new tools, new habits, rapid growth and investors looking for profits, all contributing to a state of effervescence that we might as well accept as the natural state of things.
An article in TechCrunch called “Who will be hurt most when the tech bubble bursts? Not VCs”, no longer bothers to ask if there is a bubble but simply when it will pop. In recent months, Fortune’s list of unicorns gets ever longer, at the same time as these companies value increases, but reflecting a very different situation to that of the last years of the 20th century: we are now talking about companies that in many cases are invading the markets of others that have failed to adapt, and taking over the new environment. We’re talking about Darwinian processes that are leading to companies consolidating themselves as the future of short-term rentals or as the new frontier of logistics, pushing the less-efficient out.
Silicon Valley has launched an all out attack on Wall Street. Whatever business you are in, there is a tech firm looking to take your margin, backed by stratospheric valuation, and with a lot of time to woo the market, gaining sustenance despite failing to generate any profits, and able to attract talent better than you can.
Needless to say, for all the successful companies, the ones who manage to consolidate their position and eventually start making money, there will be any number that don’t. Consolidation is not easy, because adaptation isn’t: something that starts out as a fever can rapidly cool or be replaced as users turn to a new alternative. The markets fuel these processes, as investors pile in to a company that has been valued, sending its value up further. It’s yet another example of the FOMO syndrome: Fear of Missing Out, but applied to finance.
We’re not talking about fashion, nor about some collective mental aberration. We are going to have to get used to living at a different speed. The new normal is that you do what you do, you take your time doing it and supplying the market, but there is somebody else out there thinking about how to do everything you are doing more efficiently, more profitably, and in a way that the market just can’t say no to their version.
The same perverse mechanics that lead investors to flock round new alternatives also leads older companies to be unable to innovate as quickly as is required, or to take the risks that need to be taken. Very few traditional companies on the stock exchange will escape a pattern that has already claimed many, and will claim many more. If you try to keep your head down, you’re dead. The only way to avoid being swept aside is to innovate at every level of your company, and in every sense.
So if anybody asks you whether there is a technology bubble, you can tell them yes, you better believe it. Technology offers so many possibilities that it would be strange if there weren’t one. Does this means that investors should hunker down until this blows over? Nope, I’m afraid not. Firstly, because there isn’t anywhere to hide. Secondly, because anybody who hunkers down will stay down, for good. Bubbles are the new normal. We’re all riding monocycles: lose your balance and you’re toast.
(En español, aquí)
